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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
_ TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-21738
ON-POINT TECHNOLOGY SYSTEMS, INC.
(Name of small business issuer in its charter)
Nevada 33-0423037
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1370 W. SAN MARCOS BLVD. SUITE 100, SAN MARCOS, CALIFORNIA 92069
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (760) 510-4900
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding twelve months,
and (2) has been subject to such filing requirements for the past 90 days.
Yes x No_
As of May 22, 2000, there were 10,266,401 shares of Common Stock ($.01 par
value) outstanding.
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<PAGE>
INDEX
Part I. Financial Information Page
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2000 (Unaudited) and December 31, 1999 3
Condensed Consolidated Statements
Of Operations (Unaudited)
Three Months Ended March 31, 2000 and 1999 4
Condensed Consolidated Statements
of Cash Flows (Unaudited)
Three Months Ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
Part II. Other Information 9
<PAGE>
<TABLE>
On-Point Technology Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<CAPTION>
March 31 December, 31
2000 1999
---- ----
Assets Thousands of dollars, except share amounts
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 35 $ 157
Accounts receivable, net 1,767 883
Inventories 6,493 6,325
Net investment in sales-type leases 1,741 1,619
Other current assets 606 199
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Total current assets 10,642 9,183
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Plant, property and equipment, net 520 565
Net investment in sales-type leases 2,861 2,402
Property held for operating leases, net 236 275
Property under lease agreement with Solutioneering, net 2,373 2,513
Other assets 1,800 1,712
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Total assets $18,432 $16,650
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Liabilities and shareholders' equity
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Current liabilities:
Accounts payable $ 2,660 $ 1,793
Notes Payable 2,650 1,000
Accrued expenses 654 706
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Total current liabilities 5,964 3,499
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Long-term debt 4,123 4,730
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Shareholders' equity:
Preferred stock, no par value, 2,000,000 shares
Authorized, no shares issued or outstanding - -
Common stock, $.01 par value, 20,000,000 shares
Authorized, 10,266,401 shares issued and outstanding 103 103
Additional paid-in capital 31,605 31,590
Accumulated deficit (23,363) (23,272)
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Total shareholders' equity 8,345 8,421
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Total liabilities and shareholders' equity $18,432 $16,150
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See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
On-Point Technology Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three months ended March 31,
Thousands of dollars/shares, except per share amounts 2000 1999
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As Restated
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<S> <C> <C>
Revenues $2,830 $ 4,975
Cost of revenues 1,917 3,634
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Gross profit 913 1,341
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Operating expenses:
Selling, general and administrative 576 744
Research and development 265 266
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Total operating expenses 841 1,010
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Income from operations 72 331
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Other income (expenses):
Interest expense (173) (104)
Other 11 (15)
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Total other income (expenses) (162) (119)
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Net income (loss) $(90) $212
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Earnings (loss) per share:
Basic:
Earnings (loss) per share $(0.01) $0.02
Weighted average shares 10,266 10,108
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Diluted:
Earnings (loss)per share $(0.01) $0.02
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Weighted average shares and, in 1999,
assumed conversions 10,266 11,922
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See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
On-Point Technology Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three months ended March 31,
Thousand of dollars 2000 1999
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As
Restated
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(90) $212
Adjustments to reconcile net income (loss) to net cash (used for)
provided by operating activities:
Depreciation and amortization 262 542
Issuance of options and warrants for services provided 15 25
Changes in assets and liabilities:
Accounts receivable (884) 411
Inventories (168) 175
Accounts payable 867 427
Accrued expenses 98 (737)
Other current assets (407) (49)
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Net cash (used for) provided by operating activities (307) 1,006
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Cash flows from investing activities:
Purchases of plant, property and equipment (35) (126)
Net investment in sales-type leases (581) (711)
Fixed asset disposals - 25
Increase in other assets (92) (170)
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Net cash used for investing activities (708) (982)
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Cash flows from financing activities:
Proceeds from exercise of stock warrants and options - 124
Proceeds from line of credit, net (607) (186)
Proceeds from notes payable, net 1,500 (44)
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Net cash provided by financing activities 893 (106)
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Increase (decrease) in cash and cash equivalents (122) (82)
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Cash and cash equivalents at beginning of period 157 129
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Cash and cash equivalents at end of period $35 $47
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Supplemental cash flow information:
Cash paid during the period for interest $141 $85
Cash paid (received) during the period for income taxes $0 $(1)
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See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
ON-POINT TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION The accounting and reporting policies of On-
Point Technology Systems, Inc. and subsidiaries (collectively referred to as
the "Company") conform to generally accepted accounting principles. The
condensed consolidated financial statements as of March 31, 2000 and for the
three months ended March 31, 2000 and 1999 are unaudited and do not include
all information or footnotes necessary for a complete presentation of
financial condition, results of operations and cash flows. The interim
financial statements include all adjustments, consisting only of normal
recurring accruals, which in the opinion of management are necessary in order
to make the financial statements not misleading. These financial statements
should be read in conjunction with the Company's December 31, 1999 audited
financial statements which are included in the Company's Annual Report on
Form 10-KSB dated December 31, 1999. The results of operations for the three
months ended March 31, 2000 and 1999 are not necessarily indicative of the
results to be expected for the entire year ending December 31, 2000. The 1999
condensed consolidated financial statements for the three months ended March
31, 1999 have been restated to reflect adjustments to record leases of
equipment to Solutioneering, Inc. (Solutioneering), a prepaid phone card
company that filed for bankruptcy protection in 1999, as operating expenses
rather than sales-type leases, and to record stock compensation expense for
certain warrants and options granted in previous years (see Note 12 of Notes
to Consolidated Financial Statements in On-Point's Form 10-KSB for the year
ended December 31, 1999 for a further description of the restatements).
As a result, the 1999 first quarter condensed consolidated financial
statements have been restated from amounts previously reported to properly
reflect these transactions and reclassifications. A summary of the
significant effects of the restatement is as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
1999
As Previously As
Reported restated
-------- --------
Three months ended September 30:
<S> <C> <C>
Revenues $5,294 $4,975
Cost of sales 3,606 3,634
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Gross profit 1,688 1,341
Operating expenses 985 1,010
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Income (loss) from operations 703 (331)
Other income (expense) (29) (119)
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Income (loss) before income taxes 674 212
Provision for income taxes 0 0
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Net income (loss) $674 $ 212
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Net income (loss) per share - basic $0.07 $0.02
Net income (loss) per share - diluted $0.06 $0.02
</TABLE>
<PAGE>
2. CONTINGENCIES Reference is made to the legal proceedings section of
the Note 11 of Notes to Consolidated Financial Statements in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999. On April
21, 2000, On-Point's principal competitor (Interlott Technologies, Inc.
("ILI") filed an action alleging breach of a settlement agreement between ILI
and the Company in that ILI alleges the Company was using elements of ILI's
technology in On-Point's new PlayPoint technology. Management believes that
ILI's suit is without merit and On-Point is in the process of preparing a
response to the matter. On April 20, 2000, a shareholder class action was
filed against On-Point and its chief executive officer seeking unspecified
damages and alleging violations of federal securities laws as a result of
the restatement of On-Point's financial statements in prior periods.
On-Point is in the process of preparing a response and will defend the
action vigorously.
With respect to the Solutioneering matter, On-Point continues to pursue
its claim against Solutioneering in the bankruptcy court and is seeking the
repossession of the leased machines. The financing lender to Solutioneering
has raised a claim that it has a priority security interest ahead of On-Point
to the leased machines based on their allegation that On-Point sold the
machines to Solutioneering rather than leased the machines. We believe the
arrangement with Solutioneering was a lease and that the financing lender's
claim will not prevail. However, no assurances can be given to the ultimate
outcome, and if On-Point is unsuccessful in repossessing its leased machines
the carrying amount of the leased machines of approximately $2.35 million may
be materially adversely impacted.
3. PROVISIONS FOR INCOME TAXES No provisions or benefits for federal or
state income taxes have been made for the three month periods ended March 31,
2000 and 1999. No significant changes have occurred to operating loss
carryforwards and net deferred income tax assets since December 31, 1999
(see Note 9 of Notes to Consolidated Financial Statements in On-Point's Form 10-
KSB for the year ended December 31, 1999).
4. Per Share Information In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS")
No. 128 "Earnings per Share" establishing standards for computing and
presenting Basic Earnings Per Share ("Basic EPS") and Diluted Earnings Per
Share ("Diluted EPS"). Basic EPS is computed on the basis of the weighted
average shares of common stock outstanding plus contingently issuable shares.
Diluted EPS is computed on the basis of weighted average shares outstanding
plus contingently issuable shares and the additional common shares that would
have been outstanding if dilutive potential common shares had been issued,
using the treasury stock method.
5. DEBT Notes payable at March 31, 2000, consists of a note payable to
GTECH Corporation in the amount of $1.5 million which bears interest at prime
plus 3% due August 15, 2000, a note payable to Galt Asset Management in the
amount of $850 thousand which bears interest at 10% and is due September,
2000, and a Note to Vanguard Strategies, Inc., a company wholly-owned by the
Company's chief executive officer, in the amount of $300 thousand which bears
interest at 10% and is due on demand.
In May 2000, the Company amended its line of credit with Coast Business
Credit to provide for a three-year extension (from July 2000 to July 2003)
and to increase the maximum borrowings under the line from $6 million to $10
million. As of March 31, 2000, the Company had outstanding approximately
$4.1 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL The Company's revenues through March 31, 2000 have been
generated from (i) sales of vending terminals (ii) leases of vending
terminals (iii) performance of service on vending terminals (iv) upgrades to
vending terminals, and (v) sales of associated parts.
The Company's products are sold or leased to a limited number of
customers worldwide. As a result, the Company has experienced fluctuations
in its financial results and capital expenditures because of the timing of
significant individual contract awards and customer orders as well as
associated product delivery schedules. The Company's sales cycle can, at
times, be relatively long due to the lead time required for business
opportunities to result in signed sales or lease agreements. Operating
results may be affected by such lead time as well as working capital
requirements associated with manufacturing vending terminals pursuant to new
<PAGE>
orders, increased competition, and the extended time which may elapse between
the customer's firm order and the receipt of revenue from the sale or lease
of the applicable vending terminals. In addition, there has been an
accelerating trend by customers to lease rather than purchase vending
terminal equipment. Leasing vending terminals requires the Company to invest
capital or otherwise finance the manufacture of the vending terminals. The
Company has obtained the resources necessary to finance its expanding base of
leased terminals through its line of credit, additional debt financing, as
well as through its existing cash flow and equity financing.
The Company has introduced its next generation lottery products. As a
result, the Company has entered a transition period between the introduction
of the new products and the phase-out of some of its existing products that
has negatively impacted revenues and could negatively impact gross margins
until industrialized and accepted by the market. In addition, the Company is
restructuring some of its existing operations to accommodate its plans to
introduce its new products and product lines. This may also negatively
impact results of operations during the transition period. However,
management believes the long-term benefits far outweigh any potential
negative short-term effects.
RESULTS OF OPERATIONS Revenues for the three months ended March 31,
2000 decreased by approximately $2.1 million or 44% from the prior year. The
decrease was comprised of the net effect of approximately $1.3 million
decrease in sales and sales-type leases, a $271 thousand decrease from
service and a $675 thousand decrease from operating leases. The Company
installed or shipped approximately 200 units in the three months ended March
31, 2000, versus approximately 724 units during the same period in 1999.
Cost of revenues, as a percentage of sales, for the first quarter
decreased by 5 percentage points from 73% in 1999 to 68% in 2000. The lower
percentage of costs of revenues in 2000 versus 1999 is primarily due to
higher gross margins on product sales and sales-type leases, which included
a sale of a high-margin upgrade package for certain machines owned by a
customer.
Operating expenses, as a percentage of sales, for the first quarter
increased by 10 percentage points from 20% in 1999 to 30% in 2000. Operating
expenses increased as a percentage of revenue primarily due to the decreases
in revenues in 2000. However, the Company actually reduced its overall
operating expenses by $169 thousand, or 17% for the three months ended March
31, 2000, compared to the prior year comparable period. The decrease was
almost entirely due to reductions in selling, general and administrative
expenses, which decreased $168 thousand, or 23%, in the first quarter,
primarily due to lower payroll and payroll related expenses associated with
cost reduction measures implemented by the Company. General research and
development costs expensed in the quarter remained relatively constant to
prior year quarter amounts. As a result of the above factors, income from
operations was $72 for the 2000 three month period, a decrease of $324 from
the $331 thousand of income from operations in the 1999 quarter.
Total other expenses, net or other income, for the three-month period
ended March 31, 2000 increased by $43 thousand, from $119 thousand in 1999 to
$162 thousand in 2000, primarily as a result of increased borrowings during
the 2000 quarter.
For the three months ended March 31, 2000, the Company incurred a net
loss of $90 thousand, versus net income of $212 for the prior year comparable
quarter.
LIQUIDITY AND CAPITAL RESOURCES. During the three months ended March 31,
2000, On-Point used approximately $893 thousand of net cash provided by
financing activities to fund $307 in operating activities and $708 thousand
in investing activities. As a net result of the cash activities, cash and
cash equivalents decreased by $122 during the 2000 period. During the three
months ended March 31, 1999, On-Point used approximately $1 million of cash
provided by operating activities to fund $982 thousand of investing
activities and $106 thousand of financing activities. As a net result of the
cash activities, cash and cash equivalents decreased by $82 thousand during
the 1999 period. Working capital was approximately $4.7 million at March 31,
2000 as compared to approximately $5.7 million at December 31, 1999.
During the three months ended March 31, 2000, the Company received $.5
million from GTECH Corporation in the form of a note that matures in August
2000, $.7 million from Galt Asset Management in the form of a note that
matures in September 2000, and $.3 million from the Company's chief executive
officer in the form of a demand note. With respect to the GTECH, the Company
had entered into a merger agreement with GTECH in January 2000 that was
subsequently terminated in April 2000, although discussions continue with
respect to a new arrangement. The loans from GTECH were made shortly after
the signing of the merger agreement. With respect to Galt, the Company had
been evaluating a private placement during the quarter and the loans from
Galt were bridge financing until the Company could move forward with a
<PAGE>
private placement. If the Company proceeds with a private placement, it is
contemplated that the note to Galt would be converted into an equity or
longer term debt instrument and the Company would receive an additional $1
million from private investors. The terms and completion of a private
placement are subject to a number of conditions, including the results of
discussions with GTECH. However, no assurances can be given that a private
placement will be completed.
In May 2000, as a first strategic step in stabilizing the Company's
liquidity and capital resources due to the expenditures of cash used to build
up receivables and inventory over the past nine months, the Company extended
the maturity date of its line of credit by three years (from July 2000 to
July 2003) and increased the borrowing limit from $6 million to $10 million.
The increase in the maximum borrowings allows the Company the ability to grow
if the Company is able to generate additional customer sales and leases for
its new products. The borrowing availability is subject to a number of
restrictions based on qualified assets, as defined in the loan agreement.
Management believes the Company has sufficient liquidity because of its
existing stream of contractual lease payments, its current working capital,
and its available borrowings under its $10 million line of credit to maintain
current levels of operations. However, if On-Point is unable to liquidate
its currents assets timely, then additional capital will be required to fund
existing operations. Management believes this funding, if necessary, will be
available through private placement financing. Further, in order to
accommodate recent contract awards, together with other growth related
opportunities in 2000 and beyond, On-Point will require additional financing.
Therefore, we plan to seek additional financing for these purposes during
2000. See Note 11 of Notes to the Consolidated Financial Statements in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999
for potential other matters which could affect the Company's liquidity.
YEAR 2000 COMPLIANCE As is the case with most other companies using
computers in their operations, the Company addressed in prior periods the
year 2000 problem. The Company's primary accounting and operational software
provider received year 2000 certification from the Information Technology
Association of America. Subsequent to January 1, 2000, the Company has not
experienced any significant issues relating to the year 2000 compliance. The
Company believes that it is now year 2000 compliant with respect to its
existing computer hardware, software and fax equipment and, therefore,
believes that potential risks, including any potential third party risks,
relating to year 2000 issues to now be minimal.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the legal proceedings section of the Note 11 of
Notes to Consolidated Financial Statements in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1999. There have been no
significant developments in the litigation described in the 1999 Form 10-KSB
since the date of that report.
ITEM 2. CHANGES IN SECURITIES
(a) None
(b) None
(c) None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
N/A
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
February 18, 2000 Form 8-K report was filed,
reporting that On-Point was in the process of restating its financial
statements for 1997,1998, and 1999. No exhibits were attached.
<PAGE>
SIGNATURES
In accordance with the requirements of the exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto
duly authorized.
ON-POINT TECHNOLOGY SYSTEMS, INC.
Date: June 2, 2000 /s/ Jose Rodriguez
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As Principal Financial Officer
on behalf of Registrant
